Jack Townsend offers this blog on Federal Tax Crimes principally for tax professionals and tax students. It is not directed to lay readers -- such as persons who are potentially subject to civil and criminal tax or related consequences. LAY READERS SHOULD READ THE PAGE IN THE RIGHT HAND COLUMN TITLED LAY READER LIMITATIONS. Thank you.

Tuesday, May 17, 2011

Be Careful When Using Pattern Jury Instructions -- a Tax Evasion Example (5/17/11)

In my Federal Tax Crimes book, I advise readers that pattern jury instructions for the Circuit in which a case is tried are a good beginning point for (i) understanding the elements of tax and tax related crimes and (ii) fashioning proposed instructions in a criminal tax case. However, I do caution that pattern jury instructions can be wrong or misfocused. Incident to grading examinations in the class on Tax Fraud class that I co-teach at the University of Houston Law School, I have just discovered an instance of that type of problem in the Fifth Circuit pattern jury instructions for tax evasion (which are quoted in my Federal Tax Crimes book and in the LEXIS-NEXIS Tax Crimes book). This particular error was mine (originating in an earlier version of my Federal Tax Crimes book and being uncritically brought forward), so this is my mea culpa or errata for these books; corrections will appear in the next editions. But here I will present the Fifth Circuit Pattern Instruction and also present a correct instruction from the patterned from Judge Pauley's charges to the jury in the ongoing Daugerdas case.

First the Fifth Circuit Pattern Instruction:

2.95
TAX EVASION
26 U.S.C. § 7201

Title 26, United States Code, Section 7201, makes it a crime for anyone willfully to attempt to evade or defeat the payment of federal income tax.

For you to find the defendant guilty of this crime, you must be convinced that the government has proved each of the following beyond a reasonable doubt:

First: That the defendant owed substantially more tax than he reported on his ____ [year] income tax return because he _______ [e.g., intentionally failed to report income];

Second: That when the defendant filed that income tax return he knew that he owed substantially more taxes to the government than he reported on that return; and

Third: That when the defendant filed his ____ [year] income tax return, he did so with the purpose of evading payment of taxes to the government.

Now for Judge Pauley's instruction in Daugerdas (I have modified these slightly to make them apply to taxpayers charged with evasion rather than enablers charged with evasion as in Daugerdas; the basic elements of the crime are the same as to each type of defendant charged with evasion but the wording has to be slightly different):

Elements of the Offense

In order for the crime of tax evasion to be proved, the Government must establish beyond a reasonable doubt each of the following three elements:

First, that a substantial tax was due and owing to the United States by the defendant;

Second, that the defendant committed one or more affirmative acts of evasion described in the Indictment; and

Third, that the defendant acted knowingly and willfully in attempting to evade the taxes owed.

Judge Pauley's version (as modified) crisply states the elements. The problem with the Fifth Circuit version is that it does not adequately, in my view, present the affirmative act element as required by Spies v. United States, 317 U.S. 492 (1943).

For those interested in the instruction as Judge Pauley actually gave it, here it is (just remember that the instruction is for alleged enablers):

Elements of the Offense

In order for the crime of tax evasion to be proved, the Government must establish beyond a reasonable doubt each of the following three elements:

First, that a substantial tax was due and owing to the United States by the individual at issue, namely, the tax shelter clients in Counts 2 through and Paul Daugerdas in Counts 22 through 24;

Second, that the defendant you are considering committed one or more affirmative acts of evasion described in the Indictment; and

Third, that the defendant you are considering acted knowingly and willfully in attempting to evade the taxes owed by the taxpayer client.

Addendum on 6/4/11:

In United States v. Maggert, 2011 U.S. App. LEXIS 10976 (11th Cir. 2011), the Eleventh Circuit had a tax evasion pattern jury instruction like the Fifth Circuit's. (This was likely because the Eleventh Circuit was created from the Fifth Circuit and inherited its precedent.) As noted above, I believe that instruction does not properly state the elements of the crime. Nevertheless, the trial judge modified the pattern instruction, but did not correct it to inform the jury that an affirmative act of evasion was an element of the crime. The defendant complained on appeal, and the Government conceded the omission of the element. The Eleventh Circuit nevertheless susatined the conviction under the plain error standard. The Court's reasoning is not clear to me, so rather than characterizing it, I just quote it:

Maggert has not shown plain error. First, it is not clear under our precedent whether the district court's instruction even misstated the law. Although the district court's instruction did not explicitly state that an affirmative act of evasion was an element of the offense, the instruction as a whole conveyed to the jury that it was required to find that Maggert tried to evade paying income taxes by willfully failing to report that income on a tax return. This Circuit has not directly addressed whether the willful failure to report taxable income constitutes an affirmative act of evasion, and at least one former Fifth Circuit case suggests that it does. See United States v. Buckley, 586 F.2d 498, 504 (5th Cir. 1978) ("Where one of the affirmative acts of evasion relied upon by the government in proving attempted tax evasion under the Section 7201 is the failure to file an income tax return, failure to file [under Section 7203] is a lesser included offense . . . ."). Thus, the district court's instruction was not a plainly incorrect statement of the law.

I don't find this reasoning particularly persuasive. An affirmative act of evasion is a required element as the Eleventh Circuit conceded earlier in the opinion, United States v. Kaiser, 893 F.2d 1300, 1305 (11th Cir. 1999). How then can an instruction that does not fairly articulate the element be adequate. I think the court bootstrapped to find the affirmative act implicit in the other instructions. Perhaps that is the right answer in a plain error review where the court clearly did not think the result would be any different if it reversed and remanded for a new trial. But, still, I am not sure this reasoning is satisfying.

The broader point, of course, is not to assume that the pattern instruction is a correct statement of the law.

3 comments:

The requirement that a substantial tax be due and owing was never actually held by the Supreme Court. Appellate courts that say that are wrong, and there is actually a limited difference of opinion in the circuits.

Some years ago some circuits had only two element paragraphs in a 7201 pattern charge, ignoring Sansone.

Do you think that all jurors must find the same affirmative act or acts?

1. I don't think the Supreme Court has ever said that "substantial" tax due and owing is an element of the crime. A fair, more literal reading of the statute is the only tax due and owing is required. Substantial is an interpretation that some courts (including the Second Circuit) have grafted onto the statutory text. Other courts suggested at least in dicta that there is no "substantial" requirement but then say that, in any event, in the case at hand the tax due and owing was "substantial." And, of course, we all know that many juries instructed that simply tax due and owing is an element will not convict if they think the tax due and owing is not substantial at least in some relative sense. Finally, whoever is in charge of the criminal tax enforcement system should not be pursuing evasion cases where the tax due and owing is not substantial. That was precisely the point of the examination question I posed to my students.

2. Until I re-read Sansone (which I will do tomorrow), I am not sure about what Sansone adds. I will be back if I think I can add something.

3. You asked what I think about whether the jury must find unanimity as to the affirmative act or acts. I would rephrase that to be whether the jury must be unanimous as to at least one affirmative act. If my thoughts counts, I think unanimity is or should be required. But I am not the judge. I do recall that there are some unanimity instructions in Judge Pauley's charge, but I don't recall now whether unanimity is required for at least one affirmative act. I think so. I will come back to this question tomorrow.

Steve, thanks for your comments and questions. Always good and move the discussion forward.

Judge Pauley's instruction requires unanimity as to at least one affirmative act. Here is the relevant portion of Judge Pauley's instructions:

Second Element: Attempt to Evade or Defeat a Tax

The second element that the Government must prove beyond a reasonable doubt is that each of the defendants committed or caused to be committed an affirmative act of evasion described in the Indictment. For each count, the Government must prove that the defendant you are considering took an affirmative act to attempt to evade or defeat taxes. The phrase “attempt to evade or defeat a tax” involves two elements: first, the formation of an intent to evade or defeat a tax, and second, willfully performing some act to accomplish the intent to evade or defeat that tax. There are many different ways in which a tax may be evaded or an attempt may be made to evade it.

You should also keep in mind that while the Government must prove that the defendant you are considering committed some affirmative act of tax evasion, it need not prove each act of evasion listed in the Indictment. For each count, it is enough if the Government proves one affirmative act by the defendant you are considering.

However, you all must agree on the same affirmative act of evasion that the defendant in question committed in order to satisfy this element. In other words, it is not sufficient for you to agree that the defendant in question committed or caused to be committed some affirmative act of evasion without agreeing on the same affirmative act that he or she committed or caused to be committed.

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